Skip to main content
SpringerLink
Log in

Warranty strategy in a supply chain when two retailer’s extended warranties bundled with the products

  • Published:
Journal of Systems Science and Systems Engineering Aims and scope Submit manuscript

Abstract

We in this paper examine warranty strategy in a two-stage supply chain consisting of a manufacturer and two competing retailers. The manufacturer produces two substitute products and markets them through the two retailers to a group of consumers, respectively. For each type of products, the manufacturer’s base warranty and a retailer’s extended warranty are bundled with the product. We use game theoretic models to explore the interactions between the two types of warranties and the competition between the retailers. For this purpose, two scenarios are considered: no retailer and both the two retailers providing the extended warranties, respectively. In each scenario, the manufacturer’s base warranties are assumed to be offered. Our results show that when the retailers offer their extended warranties, the manufacturer has no incentive to offer the base warranties; otherwise, the manufacturer has to provide the base warranties. The competition between retailers in terms of the product substitutability has no impact on warranty decisions, but affects all players’ profits in the supply chain. The manufacturer can provide a longer warranty length and higher customer welfare to a customer than the retailers do, if it is more efficient than the retailers in warranty cost-efficiency, and vice versa.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. Chen, X., Li, L. & Zhou, M. (2012). Manufacturer’s pricing strategy for supply chain with warranty period-dependent demand. Omega, 40(6):807–816.

    Article  Google Scholar 

  2. Dai, Y., Zhou, S.X. & Xu, Y. (2012). Competitive and collaborative quality and warranty management in supply chain. Production and Operations management, 21(1): 129–144.

    Article  Google Scholar 

  3. Desai, P.S. & Padmanabhan, V. (2004). Durable good, extended warranty and channel coordination. Review of Marketing Science, 2(2): 1–23.

    Google Scholar 

  4. Gillis, J. (1987). The Car Book. Happer & Now, New York.

    Google Scholar 

  5. Gillis, J. (1995). The Car Book. Happercollins, New York.

    Google Scholar 

  6. Ebay. (2013). NEW Nikon D5200 Digital SLR DSLR Camera. Available at http://www.ebay.com.hk/itm/NEW-Nikon-D5200-Digital-SLR-DSLR-Camera-3-Lens-18-55-VR-16GB-KIT-1-Yr-Warranty-/300886928802?pt=Digital_Cameras&hash=item460e422da2&_uhb=1#ht_14954wt_1139.

    Google Scholar 

  7. Ebay. (2014) Nikon CoolPix P7800 12.2MP Black Digital Camera with Extended Warranty. Published on February 25, 2014. Available at http://www.ebay.com/itm/Nikon-CoolPix-P7800-12-2MP-Black-Digital-Camera-with-Extended-Warranty-Case-/251451340696?nma=true&si=Vo7dOp%252BdjPKnVtvbd6vMCRDFKEI%253D&orig_cvip=true&rt=nc&_trksid=p2047675.l2557.

    Google Scholar 

  8. Heal, G. (1977). Guarantees and Risk Sharing. Review of Economic Studies, 44(3): 549–560.

    Article  MATH  Google Scholar 

  9. Heese, H.S. (2012). Retail Strategies for extended warranty sales and impact on manufacturer base warranties. Decision Sciences, 43(2): 341–367.

    Article  Google Scholar 

  10. Jiang, B. & Zhang, X. (2011). How does a retailer’s service plan affect a manufacturer’s warranty? Management Science, 57(4): 727–740.

    Article  MATH  Google Scholar 

  11. Li, K., Mallik, S. & Chhajed, D. (2012) Design of extended warranties in supply chains under additive demand. Production and Operations Management, 21(4): 730–746.

    Article  Google Scholar 

  12. Liu, Z., Anderson, T.D. & Cruz, J. M. (2012). Consumer environmental awareness and competition in two-stage supply chains. European Journal of Operational Research, 218(3): 602–613.

    Article  MATH  MathSciNet  Google Scholar 

  13. PCWorld. (2011) Hard Drive Manufacturers Slash Warranty Periods. Published on Dec 16, 2011. Available at http://www.pcworld.com/article/246456/hard_drive_manufacturers_slash_warranty_periods.html.

    Google Scholar 

  14. PRWeb. (2014). Group Mobile Offers Exclusive Bundle for the Trimble Juno T41 Rugged Handheld. Published on October 21, 2014. Available at http://www.prweb.com/releases/GroupMobie/JunoT41/prweb12259769.htm.

    Google Scholar 

  15. Purohit, D. & Srivastava, J. (2001). Effect of manufacturer reputation, retailer reputation, and production warranty on consumer judgments of product quality: a cue diagnosticity framework. Journal of Consumer Psychology, 10(3): 123–134.

    Article  Google Scholar 

  16. Saranow, J. (2005). DaimlerChrysler goes in reverse on warranties. Wall Street Journal, May 26, P. D4.

    Google Scholar 

  17. Scherer, K. (2006). GM warranties take big leap. Automot News Detroit 81, 30.

    MathSciNet  Google Scholar 

  18. Sinha, S. & Sarmah, S.P. (2012). Price and warranty competition in a duopoly supply chain. In Choi, T.M., Edwin Cheng, T.C. (eds), Supply Chain Coordination under Uncertainty (International Handbooks on Information Systems), Berlin, Heidelberg: Springer-Verlag, 2011: 281–314.

    Chapter  Google Scholar 

  19. Spence, M. (1977). Consumer misperceptions, product Failure, and product liability. Review of Economic Studies, 44(3): 561–572.

    Article  MATH  Google Scholar 

  20. Subramanian, B. (2001). Warranty signaling and reputation. Management Science, 47(9): 1282–1289.

    Article  MATH  Google Scholar 

  21. Sonic Sense. (2013) Warranty Policies. Available at http://www.sonicsense.com/warranty-information.

    Google Scholar 

  22. Warranty Week. (2004) Published on October 26, accessed October 16, 2006. Available at http://www.warrantyweek.com/archive/ww20041026.html.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. SHU-UTS SILC (Sydney Institute of Language & Commerce) Business School, Shanghai University, Shanghai, 201899, China

    Yiwen Bian & Shuai Yan

  2. School of Management, Zhejiang University, Hangzhou, Zhejiang, 310058, China

    Wei Zhang

  3. School of Business, Anhui University, Hefei, Anhui, 230601, China

    Hao Xu

Authors
  1. Yiwen Bian
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Shuai Yan
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Wei Zhang
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Hao Xu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Hao Xu.

Additional information

Yiwen Bian is an associate professor of Sydney Institute of Language & Commerce, Shanghai University, Shanghai, China. He holds a Ph.D. in management science & engineering from University of Science and Technology of China. His researches focus on performance evaluation, warranty management and service operations management. His recent research has appeared in Omega, Energy Policy, Computers & Industrial Engineering and Journal of Cleaner Production.

Shuai Yan is a graduate student of Sydney Institute of Language & Commerce, Shanghai University, Shanghai, China. His research focuses on warranty management and strategy.

Wei Zhang is a lecturer of School of Management, Zhejiang University, Hangzhou, China. He holds a Ph.D. in management science & engineering from University of Science and Technology of China. His researches focus on supply chain management, production and operations management. His recent research has appeared in Production and Operations Management, IIE Transactions, Operations Research Letters and Journal of Cleaner Production.

Hao Xu is a professor of Business School, Anhui University, Anhui Province, China. He holds a Ph.D. in management science & engineering from University of Science and Technology of China. His researches focus on performance evaluation and decision making. His recent research has appeared in Energy Policy, Journal of Cleaner Production.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Bian, Y., Yan, S., Zhang, W. et al. Warranty strategy in a supply chain when two retailer’s extended warranties bundled with the products. J. Syst. Sci. Syst. Eng. 24, 364–389 (2015). https://doi.org/10.1007/s11518-015-5270-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11518-015-5270-4

Keywords

Search

Navigation